The Gold and Silver Rally: A Tactical Play on Fed Rate Cut Expectations

The Federal Reserve’s dovish pivot in 2025 has ignited a surge in gold and silver prices, positioning precious metals as a strategic hedge against dollar weakness and inflationary pressures. With the Fed signaling a potential rate cut in September 2025—its first in over three years—investors are recalibrating portfolios to capitalize on the inverse relationship between interest rates and non-yielding assets like gold and silver [2]. This shift, coupled with a weakening U.S. Dollar Index (DXY) and robust central bank demand, has created a compelling case for tactical positioning in the precious metals sector.

Dovish Signals and the Dollar’s Decline

The Fed’s recalibration of its monetary policy framework in August 2025 marked a pivotal moment. By prioritizing maximum employment over strict inflation targeting, the central bank acknowledged a “soft patch” in the labor market, with average job gains plummeting to 35,000 per month in July 2025 [4]. While core PCE inflation remains at 2.9%, the Fed’s focus on employment risks has led to a more accommodative stance. This dovish pivot has eroded confidence in the dollar, with the DXY index down 10.6% year-to-date as of July 2025 [1]. A weaker dollar inherently boosts demand for dollar-denominated commodities like gold and silver, as they become cheaper for holders of other currencies.

Gold’s Structural Bull Case

Gold prices have surged to $3,400 per ounce in August 2025, driven by both speculative and structural factors. Central banks added 244 tonnes of gold in Q1 2025 alone, with 95% of World Gold Council survey respondents expecting further purchases in the next 12 months [5]. This trend reflects a global shift away from dollar-centric reserves, as nations diversify holdings to mitigate geopolitical and currency risks. Meanwhile, investor positioning in gold-backed ETFs has reached record levels, with $22 billion in inflows in North America through July 2025 [2]. The CFTC Commitments of Traders report also highlights a speculative net long position in gold, with non-commercial traders holding 275,767 contracts as of August 26, 2025 [3].

Historical data reinforces this bull case. Gold has averaged a 11% return in the year following Fed rate cuts, with six of seven cycles showing positive returns [3]. Lower interest rates reduce the opportunity cost of holding gold, making it an attractive asset in a low-yield environment.

Silver’s Undervalued Opportunity

Silver, often overshadowed by gold, has also benefited from the Fed’s dovish stance. Prices have climbed to $37.50 per ounce in 2025, up 30% year-to-date, driven by industrial demand and inflationary expectations [4]. The gold-silver ratio, currently at 99:1, suggests silver is undervalued relative to gold, a metric historically used to gauge mispricing [4].

Central bank demand for silver is less pronounced than for gold, but industrial demand—particularly in China’s solar energy sector—has provided a tailwind. Additionally, the CME reported a 163% increase in net long positions for silver compared to late 2024, signaling growing speculative interest [4].

Strategic Positioning in a Dovish Environment

The Fed’s data-dependent approach and the uncertainty surrounding its September rate cut decision have created a volatile but lucrative environment for precious metals. Investors are increasingly viewing gold and silver as dual-purpose assets: hedges against inflation and geopolitical risks, and beneficiaries of dollar weakness.

For tactical positioning, the case is clear. Gold’s structural demand from central banks and its historical performance during rate cuts provide a strong foundation. Silver, with its lower price and industrial demand drivers, offers a more speculative but potentially high-reward play.

Conclusion

The Fed’s dovish pivot, combined with dollar weakness and central bank demand, has created a perfect storm for gold and silver. As the September 2025 meeting approaches, investors should consider allocating to these metals to hedge against macroeconomic uncertainties and capitalize on the Fed’s easing cycle.

Source:
[1] Gold's resilience flags hidden market risks [https://www.ssga.com/us/en/institutional/insights/mind-on-the-market-25-july-2025]
[2] Gold Surges Toward $3450 as Fed Cut Bets Rise [https://discoveryalert.com.au/news/gold-surges-2025-federal-reserve-interest-rates/]
[3] S&P 500, DJIA, Gold: How 40+ Years of Fed Rate Cuts ... [https://www.cityindex.com/en-au/news-and-analysis/sp-500-djia-gold-how-40-years-of-fed-rate-cuts-have-impacted-stock-markets-and-gold/]
[4] Silver Market Outlook: Price Surge to $40 in 2025? [https://goldsilver.com/industry-news/article/silver-market-outlook-price-surge-to-40-in-2025/]
[5] Central banks favour gold over dollar for reserves, WGC survey [https://www.reuters.com/business/central-banks-favour-gold-over-dollar-reserves-wgc-survey-2025-06-17/]